Molindone is chemically known as 4H-Indol-4-one, 3-ethyl-1,5,6,7-tetrahydro-2-methyl-5-(4-morpholinylmethyl) and represented by formula I. Molindone is indicated for management of schizophrenia and is under clinical trial for alternate therapies.

The compound molindone, process for its preparation and its pharmaceutically acceptable salts are disclosed in U.S. Pat. No. 3,491,093. Another application WO 2014042688 discloses methods of producing molindone. Since there are very limited methods for preparation of molindone reported in literature there exist a need for alternate process for preparation of molindone. The present invention provides novel process for preparation of Molindone (I) and its salts.